Antitrust Karma, the Microsoft-Google Wars, and a Question for Rick Rule

The WSJ recently published the next installment of the Microsoft-Google antitrust wars. A Google representative argues “competition is one click away”; Charles (“Rick”) Rule, Microsoft’s antitrust attorney, argues that Google’s conduct might harm competition. Rule’s main point is summed up in the first line of his piece: “what goes around comes around.” The longer version of the argument is as follows: (1) Microsoft was faced with antitrust allegations instigated by rivals that its business practices harmed competition; (2) Microsoft defended on various grounds, including that there was ample competition in high-tech markets; (3) Microsoft lost and new law was made; (4) Google is now faced with similar allegations, brought on and/or instigated by similar rivals (including Microsoft), and involving similar defenses; (5) fair play and consistency dictates that the same standard be applied to Microsoft and Google; (6) thus, Google is an antitrust problem and should lose a suit brought against it. I will refer to (1)-(6) as the “antitrust karma” argument.

I’ve heard several variants of the antitrust karma argument, mainly from Microsoft lawyers and economists, though sometimes it is echoed by others. The “antitrust karma” claim strikes me as a bit odd though, as well as incomplete and a bit of a distraction from the core antitrust focus of consumer welfare. I certainly understand the “gotcha” appeal of arguments like this:

Google now finds itself in those same antitrust cross-hairs, accused of being today’s monopoly gatekeeper to the Internet. There are a growing number of complaints in the U.S. and Europe that Google has used its search monopoly to exclude actual and potential rivals, big and small. How exactly? Rigging clicks by lowering competitors’ rankings in Google searches is one way. Another is locking up critical content, like video and books, so that rival search engines are frustrated in trying to provide their users with access to that content. The result has been Google’s overwhelming dominance. Ironically, many of the most ardent defenders of Google are the same individuals—such as Eric Schmidt, Google’s CEO who was an executive at Sun and later Novell—who devoted so much time, money and effort to pushing the frontiers of the law and government regulation against Microsoft a decade ago.

And the intuitive appeal of the “consistency” argument is also strong. Who’s in favor of selective and variable enforcement? For example, Rule argues:

Whether Google likes it or not, the Microsoft case resolved antitrust’s role in high-tech. And the last 10 years have shown that reasonable antitrust rules can be applied to prevent exclusionary conduct by dominant tech firms without destroying market forces. Complaints by leading Googlers, who were once strong proponents of those rules, that the same rules should not apply to Google are disingenuous at best. The application of antitrust must be consistent. Failing to apply antitrust rules evenhandedly—particularly to politically well-connected monopolists like Google—would neither be just nor promote the cause of free-market capitalism.

All of this is well and good. Inconsistency might be bad. But it can also be good, for example, being consistently wrong is often worse than being right half the time. Hypocrisy can be bad too, as a general matter. So, perhaps Google wont win any public relations points by complaining about private rivals’ involvement in antitrust enforcement against it; but is that the issue?

What seems to be missing from Rule’s discussion, and from discussions I’ve seen that invoke “what goes around comes around” is an attempt to take on the substantive issues. The argument that Google should be treated like Microsoft as an antitrust matter makes sense if two conditions hold: (1) the Microsoft case made consumers better off; and (2) the Google case is factually like the Microsoft case in ways that extend beyond superficial similarities like the invocation of “network effects” or the fact that both are in “high-tech” markets. Geoff Manne and I discuss the second condition in this paper, and suggest that many of the issues, especially those about network effects, are quite different. But what about the first? It is not enough, on the substantive antitrust merits — that is, from a consumer welfare perspective — to argue for consistency. That only makes sense if the Microsoft case made consumers better off. Obviously, Rule knows this. He’s one of the most highly regarded antitrust lawyers in the country for good reason. Microsoft’s economic arguments against Google are one thing; but invoking the Microsoft experience in the name of consistency doesn’t work without a demonstration that consumers were left better off. And I’ve seen what appears to be an unwillingness to come out and claim as much.

Perhaps I’ve just missed it.

That brings me to my question for Rick Rule (or any takers): did the enforcement against Microsoft, in fact, make consumers better off? What evidence can you point to to persuade readers on that point?

I’m skeptical that Rule truly believes that consumer welfare increased as a result of the litigation against his client. And I’m also skeptical that available data support that claim. But I’m willing to be convinced. And because his article invokes his personal experience with the case as relevant (and I agree), and has been a prominent advocate of “consistency,” Mr. Rule seems like the right audience for the question. As I said, I’m willing to be convinced. However, “what goes around comes around” isn’t going to cut it. Karma is a lot of things, but it is not a convincing antitrust theory.

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5 responses to Antitrust Karma, the Microsoft-Google Wars, and a Question for Rick Rule

Regarding Rick Rule’s karma, Rick has suggested that society would be better off without Section 2. See his AMC statement, “The Section 2 “Mess”: Do We Really Need It or Can We at Least Make It Better?” At the panel, I quipped that he wanted to “fix” Section 2 the same way we fixed our cat.

When I purchased my computer, and several ones before that, I was pretty much forced to buy the Microsoft operating system. I was forced to give up my internet browser of choice as they couldn’t compete with Microsoft giving a browser away for free. My word processor of choice also fell by the wayside as they couldn’t compete with Microsoft giving their word processor away for free, or at a very discounted price. Going with a competitor’s software was comparatively expensive and almost needless since Microsoft had provided me with the software I needed.

Google, on the other hand, gets my business by my choice. I started using them as they were the best internet search engine, and remained much better then competitors until very recently. When their first beta popped up in the late 1990s, Yahoo was pretty much king. That is far from the case today.

Once a search engine becomes better, perhaps Microsoft’s Bing, I will abandon Google because, as they noted, they can lose my business with just a click of my mouse. I have not sunken any money in them that would cause me to stay with them nor is there a price barrier that prevents me from moving on. Want to break Google’s monopoly? Build a better mousetrap. Until then I will be googling information.

I think the MS antitrust case had a huge impact, but I have to admit to being biased: I was one of the lawyers fighting the good fight (well, that’s how I saw it anyway) on behalf of Borland, Netscape, Apple, Sun, et al. MS was using its OS monopoly to crush competition in a variety of related markets: by planting hidden, undocumented APIs inside of Windows that gave it’s other MS divisions (applications and development tools, for example) a vast competitive edge; by planting hostile technology into its products (e.g., a spam filter in Outlook that always counted competitors’ e-cards as spam, but never red-flagged MS e-cards); by propagating MS-infected versions of popular web tools like Java; and, most importantly, by inextricably binding the web browser to the Windows OS, a move which would have given it unshakeable control over the web layer and prevented the development of much of what we today call the Internet, including Web 2.0 or, indeed, anything like a Google or a Facebook that was not owned by MS. These were all tactics that a company would think twice about even contemplating if customers were free to reject Windows for a competing OS.

Just the threat of the antitrust case against MS changed things in Silicon Valley, in many of the ways 300baud suggests. Borland (which almost certainly would have gone out of business) got a new lease on life. Apple…well, we all know what Apple has been able to do. I already mentioned Google.

But the real beneficiaries of the increase in competition since the late 90s have been consumers, which is the appropriate focus when discussing antitrust. Consumers have choices they simply would not have had in the alternate universe in which the MS suit didn’t happen. It is hard to prove a case using the counterfactual – just ask President Obama about all those jobs “saved” by the stimulus – but enough of of us in Silicon Valley have memories about technologies and/or products crushed or stolen by MS to know that the world would look very different for consumers today if not for that case.

But again, I recognize that my point of view is entirely self-serving. After all, who wouldn’t want to believe that a project that consumed several years of his life and a good chunk of his hairline was important and made a difference?

Yeah, you’re biased Clegg. I didn’t have a dog in that fight (was representing Intel at the time), but did happen to sit in on the early stages of the DOJ’s MSFT case while clerking. What I saw at the time was abject failure by MSFT’s counsel to fully understand or to present the technology in a way that Judge Jackson could understand. I still strongly believe that the MSFT litigation has left us with a pernicious rule that invites courts to inspect the technological and competitive merit of engineering decisions. The previously applied standard drew a sensible — and, critically for companies, a predictable — line: a product’s design cannot be deemed anticompetitive unless there was no reasonable justification for it. Thus, the only prior case where the rule was applied involved an IBM product whose performance had been purposely downgraded to render it incompatible with a third-party device. Given plenty of plausible reasons for integrating the browser with the operating systems, that should have been the end of inquiry (at least with regard to the technological integration claims).

There’s a lot of noise around Google today, but again much of that seems to be bluster that avoids grappling with the economic and technological complexities. In the most significant area of Google’s power — search advertising — Google’s opponents don’t address the fact that the presentation of ads after a user keys in a search is a quintessential, if ephemeral, natural monopoly. Google is selling advertising placement for a single search by a single person at a single point in time. Of course it should charge a monopoly price for that placement. It’s not like Yahoo or MSFT or anyone else can sell advertising to that user at that point in time.

Unless Google is doing other things to lock consumers into using its search engine, it is very hard to see the current crop of complaints as anything other than the tried-and-true “Big Is Bad” argument.

Unfortunately, when combined with enough smoke (rhetoric, of course, plus some other questionable conduct or testimony, as was certainly there in the case of MSFT litigation), “Big Is Bad” gives you enough of a hard case to make bad law….

The real question I’d put to you, Clegg, is whether the increase in competition since the late 90s would have occurred any more slowly — or rapidly — in a world where government scrutiny of product design was verboten. I have a hard time seeing such activity as creating anything other than friction. As usual, the lawyers are the only real winners.

As a technology entrepreneur, I firmly believe the antitrust efforts against MS were beneficial to the public. Their dominant position suffocated a lot of projects in the cradle. They weren’t very innovative, but they were widely known as an ugly competitor, stealing technology where they could. No serious entrepreneur shrinks from a fair fight, but there just wasn’t a lot of point in trying to innovate in any area that Microsoft saw as their turf unless you had incredibly deep pockets and a brace of lawyers.

Once, however, Microsoft caught the attention of the DoJ, they were more careful, less willing to crush competition. That led to a lot of innovation and investment. It also aided the rise of better alternatives, like MacOS on the client side and Linux on the server side. The rise of Linux in turn drastically lowered the cost of the server-heavy web startups.

From my perspective in Silicon Valley, I think Google’s not nearly as dominant as Microsoft was in their heyday, and to the extent they are dominant, they don’t exploit it the same way. Google’s academic, internet-nerd roots give them a bias toward openness that Microsoft never had. And they seem to be fundamentally good people; for example, I’ve never heard talk of them using acquisition talks to steal technology. People aren’t afraid to innovate in spaces that touch Google.